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The Churning and Burning of Legal Wrangling and Tangling in Connected Markets

I have been deluged with policy questions on Loren Data Corp v. GXS – from my analyst colleagues and staff people at several agencies, domestic and foreign market regulators. They are not so focused on the health and prospects of Loren Data Corp, (although I might observe that the struggles of the righteous are like so much light entertainment for government agency people). The most important take away is a point made in connected markets since the AT&T divestiture – and I might add, the GXS Conundrum is simply equal to a reconstituted AT&T style monopoly, financed via PE rather than corporate revenues – they bought up other networks, they started to lever the most vulnerable innovator that could give them trouble on a level playing field, they retained the BEST corporate antitrust counsel that money can buy. So, merits have nothing to do with anything in this particular case of interconnection arbitrage. The real name is message traffic and transaction reciprocal exchange agreements – that’s the issues.

As the standards of review for antitrust violation under the Sherman act, both sections one and two, are very high, and being a legal specialty, Loren Data Corp finds itself in the august company of many, many innovative competitors that have fallen on the sharp blades of the legal system. I will not recount the cases, but as to the validity of Loren Data Corp’s claims, anyone in this business with a shred of common sense and fair play, knows that GXS exchanges message traffic with dozen’s of VANs, collects not a dime, and has singled out Loren Data for discriminatory treatment that is damaging to Loren Data Corp. It’s a no-brainer, and an adverse motion outcome is not a final act in the drama.

I have always stated, and shall state again, that the courts are a blunt instrument for getting relief, and that the regulators, while not much better, are at least familiar with the issues of networked markets, and we shall take our bundle of facts to a formal process of rule making at FCC. After all, it is the trading parties that are truly being disparaged here, although Loren Data is being manhandled on their behalf – and more to the point, it is the market for unbundled EDI Communications and the service provider model that is being hurt – 1) by GXS itself by acting in an anticompetitive manner, and 2) by the relative lack of sophistication of the district courts, that misunderstood the subject matter items, totally.

The expense of mounting an appeal is not a trivial act for a tiny company 1/500th the size of a GXS, but the President of Loren Data Corp has been somewhat gratified to have parties with aligned interests reach out to help – we shall see if that help becomes corporeal and palpable.

On the “big picture front” the issues exposed in the pleadings and forty page decision of Her Honor D.K, Cashanow, are a signpost and a roadmap for all parties with similar issues to study and make use of. Loren Data Corp has access to both a new, experienced Antitrust legal counsel, and an appellate atty. The issues now remaining are costs, the maintenance of existing traffic between ECGrid and GXS in their current transit agreements, and the further interactions with DOJ, if any, and FCC, which are coming along, not without some difficulty, but the company does see a clear path through the administrative maze.

Analysts specializing in the competitive dynamics of networked products and services are not surprised by the Loren v. GXS kerfuffle; it’s a fact of life that when inter-network connections create the actual market, the big boys who may be losing their edge will often use the leverage of interconnections to squelch the innovators. Such innovative companies often eat the lunch of the behemoths when the playing field is leveled by mandated interconnections, common carrier type connections.

So, I will continue to assist the intrepid and righteous warriors, while playing my part to help the agencies see how vital the EDI communications sector is to our economy, and why they should apply a light hand to restore an orderly and open competitive EDI market. I will also act to find allies with aligned interests to help Loren Data Corp, and finally, educate the industry as to the toxic behaviors that are the product of mishandling the interconnections (traffic exchange without-settlements) to one’s competition. We can always hope that some feeling of stewardship and a responsibility towards the trading partners (at both end of the relationship) will someday enter the actions and consciousness of the leadership at GXS Inc.